Grimes & Dotson Ltd.did not pay dividends on its 4.5%, $100 par value cumulative preferred stock during 2018 or 2019.Since 2016, 70,000 shares of this stock have been outstanding.Grimes & Dotson Ltd.has been profitable in 2020 and is considering a cash dividend on its common stock that would be payable in December 2020.The amount of dividends that would have to be paid on the preferred stock before a cash dividend could be paid to the common stockholders is:

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The preferred stock is cumulative, which means that the dividends that are not paid in one year must be paid in a later year before any dividends can be paid to the common stockholders. The preferred stock has a 4.5% dividend rate and has been outstanding for 70,000 shares since 2016. Therefore, the amount of dividends that would have to be paid on the preferred stock before a cash dividend could be paid to the common stockholders is $210,000 (70,000 shares * $3 per share).